How COVID-induced Uncertainty Influences Chinese Firms’ OFDI Binary Margins

Abstract

China’s economic policy uncertainty (EPU) and firms’ outward foreign direct investment (OFDI) research operates at the unitary level and lacks the structural foundations of binary margins. Thus, given the COVID-19 pandemic, this study employs the gravity model to examine the impact of China’s EPU on firms’ OFDI binary margins, using data from the first quarter of 2012 to the third quarter of 2020. Accordingly, China’s EPU inhibits extensive and intensive margins of firms’ OFDI significantly. Moreover, COVID-induced EPU has no significant impact on the OFDI intensive margin but positively impacts the extensive margin, indicating the motivation for diversifying investment risks.